KUALA LUMPUR, July 24 — Malaysia’s stock market is experiencing a resurgence as global investors regain interest, following years of net outflows.

International funds have become net buyers of Malaysian equities this year, driven by Prime Minister Anwar Ibrahim’s policies aimed at boosting foreign investments in the semiconductor industry and artificial intelligence (AI) data centres, financial news outlet Bloomberg reported yesterday.

This marks a significant turnaround, as foreigners had sold about US$11.5 billion (RM53.7 billion) of their holdings on a net basis over the previous six years, according to Bloomberg data cited in the report.

Investors are increasingly confident that Malaysia is on a path to recovery after years of sluggish growth and policy uncertainties caused by frequent changes in leadership.

The benchmark equity index has surged 12 per cent this year, outpacing its South-east Asian peers.

Initial public offerings (IPOs) have also seen a notable increase, with 27 debuts raising a combined US$723 million in proceeds so far this year, a 43 per cent rise compared to the same period in 2023, said the report.

Investors said more gains are in store if Anwar is able to slash more subsidies and reduce fiscal deficit.

Foreign investors have bought US$172.5 million worth of Malaysian equities this year, while they have been net sellers in Indonesia, Thailand, and the Philippines.

Key beneficiaries of this renewed interest include construction firm Sunway Bhd and utility provider YTL Power International Bhd, as investors bet on these companies to capitalise on the tech and data-centre boom.

“Malaysia offers exposure to some interesting domestic and regional structural growth trends within emerging markets,” Soo Hai Lim, head of Asia ex-China equities at Barings was quoted as saying.

“More concrete fiscal reform could be positive for the long-term outlook of the economy and stock market.”

Malaysia is also emerging as a significant player in AI-related services and remains a vital hub in the global chip supply chain, enhancing its export potential.

The country stands to benefit from companies relocating operations amid escalating trade tensions between the US and China.

Analysts are optimistic about Malaysia’s future, with BNP Paribas Asset Management’s Asean portfolio manager, Ernest Chew, highlighting clear policy objectives that provide direction for the country’s progress.

“We also expect overall earnings growth of Malaysian companies to start accelerating from here with all the policies in place,” he was quoted as saying.

The government’s fuel subsidy rationalisation plan, anticipated later this year, is crucial for meeting the fiscal deficit target of 4.3 per cent in 2024, down from 5 per cent in 2023.

Although the rollback of fuel subsidies might trigger inflationary concerns and political challenges, it is necessary for fiscal stability.

In June, the government began by cutting blanket diesel subsidies to reduce the annual subsidy bill of RM81 billion.

Domestic institutional funds have also played a significant role by increasing their investments in the local market, helping to stabilise the ringgit, which has recovered 2.6 per cent since hitting a 26-year low in February.

The increased domestic investment is crucial not only for liquidity but also for encouraging new listings and IPOs.

Analysts have raised their targets for the FTSE Bursa Malaysia KLCI and revised earnings estimates upward.

CIMB Securities projects that KLCI company earnings will grow by 11 per cent in 2024 and 8 per cent in 2025, compared to just 5 per cent last year.

For export-oriented sectors, earnings per share growth could reach up to 25 per cent over the next one to two years.

Despite these positive trends, some investors remain cautious.

Alan Richardson, a portfolio manager at Samsung Asset Management, emphasised the importance of sustained policy implementation, hoping that the current drive to attract new economy investments is the beginning of a long-term trend rather than a temporary blip.

https://www.malaymail.com/news/malaysia/2024/07/24/from-outflows-to-inflows-ai-drives-malaysia-market-turnaround/144812